Benchmarking Organizations can strive for competitive advantage and to improve perfor- mance by benchmarking standards of excellence from other firms in the area of HR just like in finance, marketing, research and development, etc. Though first used in the US quality movement, benchmarking has gained popularity in the last decade as an approach to monitoring and evaluating HR perfor- mance. The term benchmarking denotes a comparison of selected performance indicators of an organization with those from different organizations, typically in the same industry, or with comparable organizations that are considered ‘best in class’. Xerox is generally credited with the origination of benchmarking. It used this approach to reduce its manufacturing cost. Benchmarking helps an organization know how well its HR practices compare with the ‘best’ HR practices in other, more successful, organizations. Thus, it involves a com- parison of the aspects of one organization’s practices with those of other orga- nizations. Products, services, and practices must be measured against those of competitors or of market leaders on an ongoing basis to study how they are better at certain activities. Sometimes, comparisons may be made with firms from a different industry. It is thus a form of auditing. ‘A successful benchmarking exercise requires careful selection and manipu- lation of comparison measures. For example, a performance indicator for the Scanned with CamScannermarketing funetion may be ‘marketing expenditure per marketing ernphy, hen applied to HR, bene! narking involves the collection of infor ae Sat specific HR practices from a large sumber of respondent brome firms, Benchmarking HR prac rven a number of purposes (sex 1, I enables a firm to de! looking at how other or mine how it is delivering HR rving, s are accomplishing a Varios y and responsibilities, firm can audit itself. The self-audit wil pe firm identify areas in which its activities are within or outside Brn norm. 2. It helps a firm to learn from the successes and mistakes of hey ions. 3. as a tool that can be used by the firm for creating motives, :. By learning what successful firms are doing by way of He , line managers and HR managers can build a strong case allocating resources to HR activities in similar ways. 4. Ialso helps set direction and priorities for an HR manager. Rather tc fall into the trap of trying to do everything well within limited resource, benchmarking helps HR managers to focus on critical HR activis » IL enables a company to see how its ‘competencies in HR practic compare with those of its competitors. It also helps assess improve ment in HR competencies over time, to chang he, Benchmarking is likely to be beneficial for an organization; therefore, HR indicators that contribute relatively more to the overall performance of th: firm must be identified. Some examples of HR indicators for benchmarkixg are presented in Exhibit 3 ‘These indicators help a firm not onl relation to ils operational and strategi tiveni ly to evaluate its own HR practices = | ic goals, but also to compare the ele of HR practices between companies, divisions, or business unis ions can use internal client (employee) feedback about existing HR 8 and prioritise the critical success factors within the HR functie ed on this feedback. Critical success factors are those that make a difle- [ice fo the success or failure of an organization. Appropriate indicators! benchmarking are selected on the basis of these critical es factors. Solf-aduit a To learn from others sag ‘Tool to create motivation to change "~™ Holps provide focus and set priorities for HR manag” ~ To assess improvements in HR competencies over 5 Figure 3.11: Purposes of Benchmarking HR Practices d Scanned with CamScannerPerformance Indicators for HR Benchmarking HR Function Ratio of HR managers to line managers structure of HR function (decentralized/cen- . " tralized/divisionalized) «Number of HR professionals per employee HR Practices | « Retention rates for key worker groups « Percentage of new recruits who are still with the organization after six months « Percentage of salary bill spent on training « Organizational climate index (degree of em- ployee commitment) «Customer satisfaction index « Total revenue per employee « The ratio of the total cost of employment to total expenditure « The ratio of the number of training days to the number of employees = The ratio of the total training budget to the total employment expenditure = The ratio of total compensation cost to total revenue Competencies of HR Personnel = Knowledge of business (extent to which HR professional understands the financial, strate- gic, and technological capabilities of the or- ganization) Quality of service (extent to which HR man- ager provides high quality HR services such as training and development) Management of change (extent to which HR professional increases the firm’s capability for change through creativity, problem solving, etc.) Adapted from: Hiltrop and Despres 1994; Holbeche 2002 The process of benchmarking consists of the following phases when used for HRM evaluation (see Figure 3.12): fe 1. The identification of the HR practices that the organization wishes to ete, benchmark. Does it wish to benchmark compensation or training or A HR performance measures such as turnover and absenteeism? The lon, yoAcarisels E t b, factor chosen for benchmarking should be critical to the organization's Hey Alle)“ success and overall effectiveness. Upivat dul 2 The identification of the people who will be part of the team involved fare 7 in the benchmarking exercise. A team is required because of the range of activities important for conducting benchmarking evaluation. 3. Identification of the internal units/departments/divisions, competitors in the same industry, and other firms against whom the firm wishes to benchmark. These are called the ‘benchmarking partners’. The chosen partners should be willing to participate in the exercise by sharing information, and should have the so-called best practices. 4. Collection of data from each of the benchmarking partners. 5. Analysis and interpretation of the data. 6. Preparation of a written report of the major findings from the benchmarking exercise based on the analysis. Scanned with CamScannerIdentity HR practices to be benchmarked i of the Identity the team members Denchmarking exercise Bench Paring (other eee firms) ‘dentify the benchmarking partners against whom B benchmarking will be done 5 Collect data from benchmarking partners ‘Analyse and interpret data Determine performance gaps Develop action plans Figure 3.12: The Benchmarking Process Adapted from: Bratton and Gold 2003 2. Determination of performance 8aps between the way things are in the organization and the desired or ‘best practice’. The best practice for : pe jar organization depends on the business strategy of the firm. a pment of action plans to address the performance gaps and !° implement the best practices in the areas i i has beer identified. This will help imp. wey ch the gap has rove HR strate; a ” Benchmarking can be used to fin alone By and practice. value’ in different contexts, and th Penchmarking to help a firm create tage, the information derive ed to imitate, ae However, if a firm readil exactly what is meant by ‘adde# le role of Tate), he case of po Vue for the firm. Here it wou Id. The HR pra’ of the most widely benchmark S press and praetices of HP have aleo been widely ny academic books and articles. V be interesting to consider ¢] companies in the worl, reported in the busines: Scanned with CamScannershould HP share this information that will certainly become available to com- petitors? This may be due to two reasons: first, just knowing what a firm does is of no great help unless information about how the firm generated the solution is available, as well as the context in which it was implemented; and secondly, HP relies a lot on leveraging employee competencies and talents in new and different solutions. Thus, HP is continuously improving its intellectual capital. Hence, by the time a firm replicates what it learned during the benchmarking process, HP is likely to have already created new competencies to allow it to adapt to new situations. HP is an example of learning with great speed and hence it comes out the winner. Though benchmarking brings certain advantages, it also has some limita- tions. Benchmarking gets bad press when organizations copy ‘best practices’ from other organizations. When firms use benchmarking solely for the purpose of emulating best practices rather than for improving performance, advantages may be short-lived and also expensive. Moreover, mere imple- mentation of a particular HR practice may not result in benefits. The most important information during benchmarking does not come from the actual data, but rather from the qualitative information on how and why the out- comes were achieved. There are, of course, those sceptics who believe that it is not appropriate to measure the effectiveness of HRM. According to them, HRM is concerned with attitudes like satisfaction, commitment, etc. and hence it is sufficient to measure HRM in humanistic terms alone. Nevertheless, a well-conceived and well-designed benchmarking initiate focussed programmes that move the on. The most commonly used form of HR . One of the reasons for not going programme helps a firm to firm from its current positi benchmarking involves salary surveys. 0 beyond benchmarking compensation is the difficulty of finding standard and acceptable performance indicators as are available in financial management, such as ROI. The lack of benchmarking is also because of the reluctance of firms to divulge sensitive information about their HR practices related to e e retention, employee costs, etc. pen theamking HR practices has an important implication for the strategic role of HRM—it provides the organization a basis for concentrating attention and efforts on the highest value-adding HR activities that are more likely to be practiced by successful companies. Benchmarking allows HR professionals to commit limited resources to the most critical HR activities instead of trying to do everything well. es Scanned with CamScanner